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Prevention as a Giffen good: Further results

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  • Wong, Kit Pong

Abstract

This paper examines the demand for prevention when the price of prevention changes. We show that prevention cannot be a Giffen good for individuals who exhibit strongly decreasing downside risk aversion if the optimal probability of loss does not fall below 1/2. We further derive a necessary condition for the paradoxical result that prevention is a Giffen good. Calibrating the model with reasonable parameter values suggests that the necessary condition is unlikely to hold, rendering that prevention being a Giffen good may simply be a theoretical construct.

Suggested Citation

  • Wong, Kit Pong, 2025. "Prevention as a Giffen good: Further results," Economics Letters, Elsevier, vol. 255(C).
    • Handle: RePEc:eee:ecolet:v:255:y:2025:i:c:s0165176525003404
    DOI: 10.1016/j.econlet.2025.112503
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    References listed on IDEAS

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    1. Peter, Richard, 2021. "Prevention as a Giffen good," Economics Letters, Elsevier, vol. 208(C).
    2. Richard Peter, 2021. "Who should exert more effort? Risk aversion, downside risk aversion and optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1259-1281, June.
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    7. Richard Peter, 2025. "The Self-Protection Problem," Springer Books, in: Georges Dionne (ed.), Handbook of Insurance, edition 0, pages 55-82, Springer.
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    More about this item

    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G52 - Financial Economics - - Household Finance - - - Insurance

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